Image Source: PexelsAt the last FOMC press conference, Fed Chair Jerome Powell noted QT, also known as balance sheet reduction, was coming to an end. Here’s where we stand.
Federal Reserve Data, chart by Mish, MBS stands for Mortgage Backed SecuritiesJune 2022, the Fed began a balance sheet runoff schedule to let up to $95 billion securities ($60B Treasuries and $35B MBS) mature without reinvesting, thus gradually reducing its size in QT.QT has been ongoing for 22 months. Allowing a month for settlement and noting that March isn’t over, let’s call it 20 months.Runoff Math
The Fed’s balance sheet is now a massive $7.5 trillion. Is this a success?The New Normal Balance SheetPlease recall that when the balance sheet ballooned to $2 trillion, former Fed chair Ben Bernanke said it would be no problem winding if back down to normalIt seems that normal is now $7 trillion up from Bernanke’s $1 trillion with mortgage backed securities over $2 trillion up from $0.Cumulative Federal Deficit
The Peter G. Peterson foundation has some sobering thoughts on the Current Federal Deficit.
For the first five months of FY24, total outlays were $2.7 trillion, $227 billion higher than the same period in the previous year. Adjusting for timing shifts, spending was $236 billion above the same period last year. Two areas of the budget have experienced rapid increases so far this year. Net interest has grown by $116 billion (49 percent) relative to the first five months of last fiscal year, mostly due to higher interest rates; deposit insurance has risen by $61 billion because of actions related to bank failures in 2023. In addition, spending on Social Security, Medicare, and defense increased significantly in the first five months of the fiscal year. Partially offsetting those increases in outlays was a $39 billion decrease in spending by the Pension Benefit Guaranty Corporation (PBGC) because certain one-time payments were made to pension plans in FY23 but not FY24.
Debt Held by the Public
In the past year, debt held by the public has gone up by $2.8 trillion.Year-over-year debt always goes up more than the deficit because the CBO does not count Social Security deficits until they are realized.Republican Humiliation Enshrined in Huge 1,000-Page $1.2 Trillion BillOn March 21, I noted Republican Humiliation Enshrined in Huge 1,000-Page $1.2 Trillion Bill
The $1.2 Trillion that is on the table is for six components, not the entire budget.
On December 22, 2023 Biden signs $886 Billion US Defense Policy Bill Into Law. The new bill added another $26.8 billion.
At a minimum, we are at $2.086 trillion. And that is not counting Biden’s request for another $100 billion or so for Ukraine and Israel.
In February, the Congressional Budget Office released its annual Budget and Economic Outlook and projected that the nation will run a $1.6 trillion deficit in FY2024.That estimate did not count an extra $26.8 billion for defense spending, anything for Ukraine or Israel, nor the Social Security deficit.The CBO forecasts no recession (it never does) and it forecasts inflation will drop.Expect debt to go up at least another $2 trillion in the next year. If recession hits, that could easily double or more for FY2025.Mission Accomplished?Meanwhile, genuine economic nut cases are calling for more public housing.For discussion, please see the proposed New Green Deal for Public HousingMore By This Author:Consumer Stress Is Evident In The Declining Price Of New Homes New Home Sales Little Changed In February In The Next 5 Years Employment In Age Groups 60+ Will Drop By ~12.5 Million
